Marvin Kelly, Founder and Portfolio Manager, Quaternion Capital Management
Can you tell us a bit about Quaternion Capital Management?
Quaternion is a fund I co-founded in January this year after leaving Credit Suisse’s proprietary
trading group. Its focus is developing market-neutral quantitative strategies, primarily for global
equities and futures.
Describe your investment strategy and why it differs from what other fund managers are doing.
Our primary area of interest is statistical arbitrage, where we have an edge as a result of extensive research and trading experience across all major markets for the last 11 years. Instead of relying on a single model or approach, we employ a variety of methods to identify and develop a portfolio
of strategies based on diverse methods and signals to reduce risk. We also address trading at multiple time frames, from longer-term valuation and stock-selection to short-term execution.
What investment themes in Asia do you see as the most attractive at the moment?
One particular theme is “will Japan finally begin to recover?” This question has been asked many times in the last 20 years, and each time of course the answer has been “not yet”. If the Japanese economy can finally escape from deflation and the equity market does exhibit some strength and garner more interest from international investors, it will be beneficial to a variety of strategies there. Most quant strategies are beta-neutral and not dependent on market direction but they all benefit from increased flows and investor participation.
Has your approach to risk management changed in recent times?
With financial crises occurring every 9-12 months we have become more conscious of the effects of the macro environment on quantitative trading and the ways in which we can use risk measures and factor dynamics to characterize particular regimes. In the “good old days”, like 2009, it was enough to intelligently buy into underperformance across the board but it’s nowhere nearly that simple today.
Do you see changes in regulation as a threat or an opportunity?
New regulations passed to encourage fair and liquid markets expand the opportunity set; those passed as a result of fear, such as the recent short-selling bans, reduce it and have no real benefits to any market participants.
Fundraising in Asia: as Asian investors increase their hedge fund allocations, do you think Asian managers will start to benefit more or will big global fund managers get most of the assets?
Large fund managers have received the bulk of new inflows recently partly because of investor familiarity and the issues concerning due diligence in the post-Madoff environment. This trend will hopefully slow down a bit as investors seek higher returns from local funds which are less capacity-constrained but this will require a pickup in general risk appetite which is probably not on the horizon right now.
What is the biggest difference between your old gig as an investment bank prop trader and now running your own shop?
The benefits of being at a new firm include the ability to move quickly into new markets or strategies and better control of technology decisions which are important for quantitative trading. As a prop trader at CS a lot of the basic business functions were well handled by the firm’s support teams but the bank was less nimble in areas such as software development.
Why did you choose Hong Kong as a base?
I have lived and traded in New York, London, and Tokyo but Hong Kong beats all three in terms of a business-friendly environment and a convenient, modern infrastructure. It also has a good regulatory system and is attracting an expanding talent pool which bodes well for the future of fund management here. The “through-train” of capital from China has been slow to develop but is becoming more open which will also benefit HK.
What would you have done if you hadn’t been a fund manager?
I’d start a rock and roll band.
(Sep 2011)
